S&P 500 Index Funds: The Best A&P 500 Index Funds that you can Invest with as an Investor
When it comes to investing, there are a lot of options out there. You could invest in stocks or bonds, but one of the safest and easiest ways to invest is with index funds. Index funds track the performance of an index like the S&P 500, which means that you're able to get exposure to a group of companies without having any risk if they go up or down in value. In this blog post, we will show you how easy it is for you to start investing with S&P 500 index funds so let's get started!
What are S&P 500 index funds?
S&P 500 index funds are mutual funds or ETFs that track the performance of the S&P 500; a market-weighted index made up of 500 of the largest companies in America. The S&P 500 is a great benchmark to measure your investments off of because it tracks large-cap stocks, which have historically been very stable and safe investments.
There are other S&P indices that track the performance of the US market, but we will be focusing on the 500 large-cap indexes, which is also known as S&P 500 Index SPX, +0.09%
The Best S&P 500 Index Funds to Invest With
Before you can start investing in S&P 500 index funds, you need to identify the best among the ones listed in the market. This will make sure you get the best returns from your invested amount.
Here are some of such S&P 500 index funds;
Schwab S&P 500 Index Fund (SWPPX)- this is one of the low-cost S&P 500 index funds that you can always invest in. They invest about 80% of their net assets in stocks.
2020 Return: 18.39%
Expense Ratio: 0.02%
Minimum Investment: $0
Fidelity 500 Index Fund (FXAIX) – this is a mutual fund that is also one of the low cost.
2020 Return: 18.4%
Expense Ratio: 0.015%
Minimum Investment: $0
Assets Under Management: - $343.3 Billion
State Street S&P 500 Index Fund Class N- Unlike other S&P 500 Index Funds, this one requires about $10,000 for you to start investing with them.
2020 Return: 18.59%
Expense Ratio: 0.16%
Minimum Investment: $10,000
Assets Under Management: - $1.6 Billion
Benefits of Investing in S&P 500 Index Funds
i. No minimum investment required.
ii. They are very simple to invest in.
iii. Low expense ratios compared to other funds.
iv. Conveniently located at your bank or other brokerage firms, so you don't have to wait for the delivery of paper documents to get started investing.
v. Most S&P 500 Index Funds do not charge annual transaction fees when you are buying or selling shares of the fund.
vi. Very transparent nature of S&P 500 Index Funds. Therefore, you know what is in your fund and how much it is going to cost every year.
vii. All S&P 500 Index Funds seek to match the return on investment of the index they track: The Standard & Poor's Corporation (S&P) 500, an index of 500 large-capitalization U.S. stocks.
viii. Stable value – the minimum guaranteed return for your money is 0%.
ix. Reasonable expense ratios compared to other funds.
x. Very diversified – covers a massive portion of the market, so it protects you from any single company going belly up.
Are there Risks Associated with S&P 500 Index Funds?
The S&P 500 index funds are considered to be the safest investments that you can make as an investor. It is important to know that there are no risks associated with these funds. However, even though it's safe, your capital could still be at risk if an economic crisis happens, which causes the performance of the market to drop substantially.
How to Invest in S&P 500 Index Funds
One way to invest in the S&P 500 Index Funds is by buying ETFs. But when it comes to ETFs, there are certain issues that an investor has to address before investing in them. Each investor invests in the stocks of a country or sector for different reasons. Some investors may have just bought these stocks with the intention to hold them for several months or years. On the other hand, there are certain investors who consider ETFs as long-term investment options. They believe that investing in an ETF today will help their portfolio grow with time.
No matter your reasoning behind buying S&P 500 Index Funds, you have to find a way to make your portfolio solid.
Here are some ideas on how you can boost your S&P 500 Index Funds portfolio:
Diversify Within S&P 500 Index Funds Universe - Now that you own an ETF, it is time for you to diversify the funds across different sectors as well as you can. Having a concentrated portfolio in a single sector or a country's market is a big NO!
Buy More ETFs - Now that you have invested in the S&P 500 Index Funds, it is time for you to extend your investment horizon and diversify across asset classes such as bonds, REITs, emerging market equities, and international developed market equities.
Hedge Your Position - You should consider hedging your S&P 500 Index Fund portfolio to protect it from the downfall of the index in case of any economic crisis like recession or financial meltdown. You can hedge your index funds by selling short ETFs that would rise in value as the index falls.
Rebalance Your Portfolio - If your ETFs have appreciated more than the fact sheet of your plan, then you should consider selling them to book profits and using that money to buy more of those under-performing ETFs. Similarly, if one of your ETFs lagging behind, you can either sell it or add more money.
Always Diversify Your Portfolio - No matter what your yearning is, you should always diversify your portfolio for maximum results and risk management. You can add bonds, REITs, commodities, etc., to hedge your equity exposure. You should also distribute your investments across asset classes to manage volatility.
Stick To Your Investment Strategy - There are days when you lose faith in your strategies and want to buy or sell everything under the sun. Then there are others who sit on cash for too long, which also does not make any sense. But if you believe in a strategy, then don't deviate from it. Be consistent with your investments, and you will be rewarded in the long run, even if short-term results are not very encouraging.
Remember The Bigger Picture - No matter how hard it gets, never lose sight of the bigger picture. Like we said earlier, investment is a marathon and not a sprint, so patience is key here.
Invest in What You Know - You probably won't make any money if you invest in things you don't understand or have no clue about.
The S&P 500 Index funds bear almost zero risks for you to invest with them. It is here that you can always invest even without necessarily having the investing knowledge. Apart from being easy for you to invest in S&P 500 Index funds, most of these funds also require zero initial investment for you to start trading. Try out the S&P 500 Index funds today!